The International Monetary Fund (IMF) does not plan to restart negotiations about a possible $4.8 billion loan to Egypt until the country’s military-backed transitional government gains recognition from the global community.

"It's a case of the international community...its
institutions, its nations, coming together and recognizing a
particular government," said IMF deputy spokesman
William Murray, adding that "until that happens, and until our
members make a decision on the Egyptian government, we're going
to keep our context technical (at the technical
level)."

Egypt began talks with the IMF over the critically needed loan in
2011, before the military coup which resulted in the July 3
removal of Muslim Brotherhood President Mohamed Morsi. The amount
of the loan started at $3.2 billion and was later raised to $4.8
billion.

However, newly appointed Planning Minister Ashraf al-Araby
acknowledged that the combined $12 billion aid received in early
July from the oil-rich Gulf nations of Saudi Arabia, the United
Arab Emirates, and Kuwait would support Egypt through its
transitional period.

Al-Araby previously stated that“it is not
appropriate to have a new round of negotiations with the IMF
until Egypt regains political stability," though he noted
that these views are his own and cannot be applied to the
official ministerial policy, Ahram online reported.

The new cabinet, which was appointed in mid-July, said that an
IMF loan was only "part of the solution" to the country's
problems. Egypt's parliamentary elections are scheduled to take
place within the next six months. However, any transition could
be delayed by radical economic reforms that are attached to the
IMF loan. The implementation of austerity measures could hurt
living standards and bring protesters back into the streets.

After a year of Morsi's administration, Egypt’s budget deficit
has tremendously increased. The government’s labor costs and
interest expenses rose, while tax revenue remained weak.
According to Reuters, some economists estimate that the
deficit over the last year was equivalent to 15 per cent of gross
domestic product (GDP).

"This is a reason for rising prices and the wave of inflation,
which increases the burden on citizens," said Egypt’s newly
appointed finance minister, Ahmed Galal.

The IMF has asked Egypt’s government to reduce the country’s
subsidy bill and to rationalize fuel and food
subsidies. Morsi’s administration was wary of
implementing these cuts, fearing it would trigger unrest among
the population.

According to Galal, it was important to avoid
undesirable deflationary policies and their negative effects on
the labor market.

Meanwhile, roughly $1.3 billion in military aid was suspended by
the US on Wednesday. Four F-16 fighter jets were originally
to be delivered to Egypt this week - but according to a law
passed last year, the US government is forbidden to help any
country where the military is involved in an unconstitutional
change of government.

An IMF loan is viewed as a necessary step to show foreign
investors that Egypt's economy is on the right track.